High Deductible Health Plans (HDHPs) and Health Savings ...

High D
(HDHP
Accou
Those

M
E

D

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

Deductible Health Plans
Ps) and Health Savings
unts (HSAs)—How Do
e Plans Work?
Mary E. Powell
Eric Schillinger

December 16, 2015

ancisco, California 94111

Overview

 The rules for Health Savin
found in Internal Revenue
guidance issued by the IR

 HSAs are tax-favored cust
contributed to by, or on b
individuals” who are cove
health plans (HDHPs) to p
expenses of the eligible in
spouses and tax depende

 HSAs can be funded on a
cafeteria plan

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

ngs Accounts (HSAs) are
e Code Section 223 and the
RS
todial accounts that can be
behalf of, “eligible
ered by high-deductible
pay for certain medical
ndividuals and their
ents
a pre-tax basis through a

ancisco, California 94111 2

Overview

 As you can see from the f
different plans involved

> HDHP (generally an ERIS
subject to the ACA rules)

> HSA (likely not an ERISA
many rules in the Tax Co

> Section 125 Cafeteria Pla
employees to make pre-t

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

first slide, there are several

SA covered plan that is also
)
A covered plan but subject to
ode)
an (which is used to allow
tax contributions to the HSA)

ancisco, California 94111 3

Overview—HSAs are M

 An HSA-eligible individual can ma
limits) to an HSA and get an “abo
can contribute on a pre-tax basis
> There is state tax in California

 Investment earnings on HSA fund
withdrawn for qualified medical e
taxation

 Employers that contribute to thei
deduction for those contributions
are excludible from the employee
subject to FICA or FUTA (in most
> There is state tax in California

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

MAGIC!!

ake contributions (up to statutory
ove-the-line” tax deduction—or they
s via a cafeteria plan
a
ds generally are tax-free and funds
expenses are not subject to federal

ir employees' HSAs get a federal tax
s. Employer contributions to HSAs
es’ gross wages, and are not
t cases)
a

ancisco, California 94111 4

HSA—Basic Rules

 To be HSA-eligible and cont
individual must be covered

 An individual must not be co
non-HDHP health coverage.
things to consider, such as
medical clinics, telemedicine

 The individual must not be
cannot be claimed as a tax
taxpayer

> Again, this is very TRICKY!
> Remember, a spouse is NE

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

tribute to an HSA, an
under a qualifying HDHP
overed by any impermissible
. This is TRICKY!! A lot of
a health FSA, HRA, on-site
e, etc…
enrolled in Medicare and
dependent by another

!
EVER a dependent

ancisco, California 94111 5

HSA—Basic Rules
An individual may estab

on or after the date the
eligible. An individual m
trustee or custodian and
forms

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

blish an HSA at any time
e individual becomes HSA-
must find a qualified HSA
d complete the necessary

ancisco, California 94111 6

HSA—Basic Rules

 The maximum annual HSA
indexed amount (for 2016
coverage or $6,750 for fa

> There is also a “catch-up
> The maximum annual co

available only for individu
individuals for all 12 mon
the contribution limits ar
> There are some special r

 HSA account holders have
in their account balances

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

A contribution is an
6, $3,350 for self-only
amily coverage)

p” amount
ontribution generally is
uals who are eligible
nths during the year because
re applied on a monthly basis
rules

e a nonforfeitable interest

ancisco, California 94111 7

HSA—Basic Rules

 Neither an HSA custodian
required to determine wh
used for qualified medical

> This is determined by the
maintain records to prov
IRS audit

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

n nor an employer is
hether HSA distributions are
l expenses

e HSA-holder and he should
vide that in the event of an

ancisco, California 94111 8

In Depth!

 The first slides provided a
rules

 The next portion of the pr
into the rules

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

a broad overview of the
resentation will dig deeper

ancisco, California 94111 9

HSA Eligibility—Employ

 Employers that contribute
only responsible for deter

> whether the employee is
any non-HDHP plan spon

> the employee's age (for

 Why this matters? Employ
reasonable belief, when th
employees' HSAs, that the
excludable from the empl

> If not, then the employe
to federal income tax wit

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

yer Obligation

e to an employee's HSA are
rmining the following:

s covered under an HDHP or
nsored by that employer; and
r catch-up contributions)

yers must have a
hey contribute to their
eir contributions will be
loyees' income

er contribution will be subject
thholding, FICA and FUTA

ancisco, California 94111 10

HSA Eligibility

 An individual's status as an
determined monthly as of th

> However, the contributions
made until the original filin
for the HSA holder's tax ret

 To be eligible for HSA contr

> must be covered under an
> must not have other imper
> must not be enrolled in Me
> cannot be claimed as a dep

return

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

eligible individual is
he first day of the month

s for a taxable year need not be
ng due date (without extensions)
turn

ributions, an individual:

HDHP;
rmissible health coverage;
edicare; and
pendent on someone else's tax

ancisco, California 94111 11

HSA Eligibility Requirem

 In order to be eligible to establish
covered under an HDHP for the m
made to the HSA

 An HDHP must:

> meet statutory requirements for
expenses; and

> provide “significant benefits”

 For self-only HDHP coverage to q

> the HDHP coverage for an individ
at least $1,300 for 2016 before a
medical expenses (other than pre

> the sum of the plan's annual ded
pocket expenses that the insured
payments and co-insurance (but
for 2016

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

ment #1—HDHP Coverage

h an HSA, an individual must be
months for which contributions are

annual deductibles and out-of-pocket

qualify for HSA eligibility:

dual must have an annual deductible of
any reimbursement is made for eligible
eventive care); and
ductible and any other annual out-of-
d is required to pay, such as co-
not premiums), cannot exceed $6,550

ancisco, California 94111 12

HSA Eligibility Requirem

 Family coverage is any coverag
 For family HDHP coverage to qu

> it must have a deductible of at
reimbursement is made for elig
preventive care); and

> the sum of the plan's annual de
of-pocket expenses cannot exc

 For individuals with family cove
from the HDHP (other than for
required minimum annual dedu
has been satisfied

> Watch out for an embedded ind
lower amount!

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

ment #1—HDHP Coverage

ge other than self-only coverage
ualify for HSA eligibility:

least $2,600 for 2016 before any
gible medical expenses (other than

eductible and any other annual out-
ceed $13,100 for 2016

erage, no amounts can be paid
preventive care) until the

uctible for family HDHP coverage

dividual deductible that is at some

ancisco, California 94111 13

HSA Eligibility Requirement #
Are Considered Significant Be
 IRS has not defined “significan

examples of noncompliant cov

> restricting benefits to expenses f
(and excluding out-patient servic

> “mini-med” plans (plans that pro
benefits but may also cover certa

 Q&A 14 from IRS Notice 2008

“Q-14. If a health plan meeting
223(c)(2)(A) restricts benefits to
patient care, is the plan an HDHP
A-14. No. A plan must provide s
plan may also be designed with r
the plan's covered benefits.”

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#1—HDHP Coverage—What
enefits?

nt benefits,” but has provided
verage, such as:

for hospitalization or in-patient care
ces); and
ovide only limited fixed indemnity
ain specified diseases)

8-59

the minimum deductible of §
o expenses for hospitalization or in-
P?
significant benefits to be an HDHP. A
reasonable benefit restrictions limiting

ancisco, California 94111 14

HSA Eligibility Requirement #
Are Considered Significant Be
 A plan also does not qualify as

is “permitted insurance”—insu
all of the coverage provided re
> liabilities incurred under wo
> tort liabilities, liabilities rela

property (e.g., automobile
> insurance for a specified di
> insurance that pays a fixed

period) of hospitalization
 For employers, take note of bu

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#1—HDHP Coverage—What
enefits?

s an HDHP if all of its coverage
urance under which substantially
elates to:
orkers’ compensation laws;
ating to ownership or use of

insurance);
isease or illness; and
d amount per day (or other

ullets #3 and #4

ancisco, California 94111 15

HSA Eligibility Requirement #
Counts Against the HDHP Ou

 Out-of-pocket expenses include c
and copayments, but do not inclu
HDHP rules do not require the fo
out-of-pocket maximum:

> Out-Of-Network—A network plan
solely because the out-of-pocket
the network exceeds the maximu
HSA purposes, so long as the pla
an HDHP

> UCR—Amounts charged in exces
cost for the service that an indivi

> Penalties—Penalties on individua
a specific provider or procedures
such penalties or increased co-pa
of-pocket limit

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#1—HDHP Coverage—What
ut-of-Pocket Maximum?

cost-sharing such as deductibles
ude premiums. In addition, the
ollowing to be counted against the

n will not fail to be a qualified HDHP
t limitation for services provided outside
um out-of-pocket limitation allowed for
an otherwise meets the requirements of

ss of usual, customary, and reasonable
idual is required to pay do not count
als who fail to obtain precertification for
s. IRS Notice 2004-50 provides that
ayments do not count against the out-

ancisco, California 94111 16

HSA Eligibility Requirement #
Coverage

 In order to be an eligible individual
must have no other impermissible
preventive care or certain permitte

 IRS Notice 2004-23 provides the fo
> Periodic health evaluations, inc
procedures ordered in connecti
as annual physicals
> Routine prenatal and well-child
> Child and adult immunizations
> Tobacco cessation programs
> Obesity weight-loss programs
> Certain listed screening service

 Preventive care generally does not
intended to treat an existing illness

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

l for HSA purposes, an individual
health coverage unless it constitutes
ed coverage
ollowing definition of preventive care:
cluding tests and diagnostic
ion with routine examinations, such

d care

es 17
t include any service or benefit
s, injury, or condition

ancisco, California 94111

HSA Eligibility Requirement #
Coverage

 From IRS Notice 2004-50

> Q-26. Does a preventive care
includes the treatment of a re
procedure come within the sa
Notice 2004-23?

> A-26. Yes….in situations whe
impracticable to perform anot
condition, any treatment that
preventive care service or scr
23 also falls within the safe-h
example, removal of polyps d
preventive care that can be p
HDHP has been satisfied.

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

0

e service or screening that also
elated condition during that
afe harbor for preventive care in
ere it would be unreasonable or
ther procedure to treat the
t is incidental or ancillary to a
reening as described in Notice 2004-
harbor for preventive care. For
during a diagnostic colonoscopy is
provided before the deductible in an

ancisco, California 94111 18

HSA Eligibility Requirement #
Coverage

 From IRS Notice 2004-50

> Q-27. To what extent do drugs o
harbor for preventive care servic

> A-27. …drugs or medications are
person who has developed risk fa
manifested itself or not yet becom
asymptomatic), or to prevent the
a person has recovered. For exa
with cholesterol-lowering medica
disease or the treatment of recov
with Angiotensin-converting Enzy
reoccurrence, constitute preventi
care safe harbor under section 2
service or benefit intended to tre
condition, including drugs or med
illness, injury or condition.

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

or medications come within the safe-
ces under section 223(c)(2)(C)?
e preventive care when taken by a
actors for a disease that has not yet
me clinically apparent (i.e.,
e reoccurrence of a disease from which
ample, the treatment of high cholesterol
ations (e.g., statins) to prevent heart
vered heart attack or stroke victims
yme (ACE) inhibitors to prevent a
ive care... However, the preventive
223(c)(2)(C) does not include any
eat an existing illness, injury, or
dications used to treat an existing

ancisco, California 94111 19

HSA Eligibility Requirement #
Coverage

 IRS Notice 2013-57 states
fail to qualify as an HDHP
provides without a deduct
services required under th

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

s that a health plan will not
P merely because it
tible the preventive health
he Affordable Care Act

ancisco, California 94111 20

HSA Eligibility Requirement #
Coverage

 From IRS Notice 2004-50

> Q-9. May an individual wh
also has a discount card th
discounts for health care se
to an HSA?

> A-9. Yes. Discount cards t
discounts for health care se
care market rates will not d
being an eligible individual
individual is required to pay
(taking into account the dis
the HDHP is satisfied.

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

ho is covered by an HDHP and
hat enables the user to obtain
ervices or products, contribute
that entitle holders to obtain
ervices or products at managed
disqualify an individual from

for HSA purposes if the
y the costs of the health care
scount) until the deductible of

ancisco, California 94111 21

HSA Eligibility Requirement #
Coverage
 Example. An employer provid

pharmacy discount card. For
employer), each employee rec
holder to choose any participa
year life of the card, the card
percent to 50 percent off the u
charged by the providers, with
discounts received during the
responsible for paying the cos
account the discount) until the
plan covering the individual is
otherwise eligible for an HSA w
as a result of having this bene

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

des its employees with a
a fixed annual fee (paid by the
ceives a card that entitles the
ating pharmacy. During the one-
holder receives discounts of 15
usual and customary fees
h no dollar cap on the amount of
year. The cardholder is
sts of any drugs (taking into
e deductible of any other health
satisfied. An employee who is
will not become ineligible solely
efit.

ancisco, California 94111 22

HSA Eligibility Requirement #
Coverage

 Types of other coverage tha
requirement:

> “Permitted insurance” (describ
compensation, auto insurance
etc…)

> Coverage for accidents, disab
long-term care

> Limited purpose Health FSAs
> EAPs and wellness programs t

benefits in the nature of medi
> On-site medical clinics that co

“insignificant” medical benefit

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

at will not violate this

bed on prior slide—workers
e, insurance for specified disease,

bility, dental care, vision care, and

or HRAs
that do not provide “significant
ical care or treatment”
over only preventive care, or other
ts

ancisco, California 94111 23

HSA Eligibility Requirement #
Coverage

 Examples of impermissible oth

> Non-HDHP “carve-out” covera
coverage)

> General purpose Health FSAs
> EAPs and wellness programs t

benefits in the nature of medi
> On-site medical clinics that pr

“significant” medical care
> Tricare

> What about telemedicine?

 Next several slides will dive de
on-site medical clinics and tele

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

her coverage:

age (includes prescription drug

or HRAs
that provide more than “significant
ical care or treatment”
rovide more than preventive care or

eeper into Health FSAs, EAPs,
emedicine

ancisco, California 94111 24

HSA Eligibility Requirement #
Coverage

 For a Health FSA and for
often the employee and h
covered—there is no elect
plan simply provides it

 For example, if the emplo
Health FSA, then the emp
are not HSA eligible

> It does not matter if that
reimbursement request—
the Health FSA

© Copyright Trucker Huss, APC | One Embarcadero Center, 12th Floor, San Fra
Telephone: 415-788-3111 | Facsimile: 415-421-2017

#2—No Other Impermissible

a HRA, remember that
his/her spouse are
tion for the coverage, the
oyee is enrolled in the
ployee and his/her spouse

t spouse never makes a
—that spouse is covered under

ancisco, California 94111 25